- Arbitral Award
- ICC International Court of Arbitration, Rome 5835
LONG-TERM CONTRACTS - CONTRACT FOR SUPPLY, INSTALLATION AND MAINTENANCE OF ELECTRICAL WORKS - BETWEEN AN ITALIAN COMPANY AND A KUWAITI COMPANY - SILENT AS TO APPLICABLE LAW - APPLICATION BY ARBITRAL TRIBUNAL OF DOMESTIC LAW (KUWAITI LAW) TOGETHER WITH "PRINCIPLES GENERALLY APPLICABLE IN INTERNATIONAL COMMERCE" - REFERENCE TO INDIVIDUAL PROVISIONS OF THE UNIDROIT PRINCIPLES FOR INTERPRETATION OF APPLICABLE DOMESTIC LAW
NON-PERFORMANCE - ART. 7.1.6 UNIDROIT PRINCIPLES TO INTERPRET GROSS MISTAKE UNDER KUWAITI LAW
DAMAGES - ART. 7.4.3(3) UNIDROIT PRINCIPLES TO CONFIRM DISCRETIONARY POWER OF THE COURT IN ASSESSING DAMAGES UNDER KUWAITI LAW - ART. 7.4.7 UNIDROIT PRINCIPLES TO CONFIRM RULE UNDER KUWAITI LAW THAT DAMAGES BE REDUCED IF DUE IN PART TO AGGRIEVED PARTY
INTEREST - ART. 7.4.9(3) UNIDROIT PRINCIPLES TO CONFIRM RIGHT TO ADDITIONAL DAMAGES UNDER KUWAITI LAW
An Italian company (the main contractor) and a Kuwaiti company (the subcontractor) entered into a contract for the supply, installation and maintenance of electrical works. The contract provided for arbitration to be held in Italy and subject to Swiss law. The dispute arose when, despite completion of work by the subcontractor, the main contractor failed to pay and refused to release performance bonds. The subcontractor requested the release of these bonds and in addition claimed damages; the main contractor counterclaimed damages arising from the delayed completion of work, alleging that such delay (20 months) was due to several failures to perform (gross mistakes) by subcontractor.
In an interim award, rendered in December 1989, the Arbitral Tribunal interpreted the reference to Swiss Law as a choice of the law governing the arbitration procedure. As to the law applicable to the substance of the dispute, the Tribunal concluded in favour of Kuwaiti law as the law most closely connected with the relevant elements of the contract, but it decided also to take into account "principles generally applicable in international commerce".
In its final award the Arbitral Tribunal, without further explanation, referred on several occasions to the UNIDROIT Principles. Thus it referred to Article 7.1.6 to interpret the notion of gross mistake under Kuwaiti law, and concluded that a party's conduct is grossly negligent when it leads to a performance substantially different from what the other party reasonably expected. Moreover, it referred to Articles 7.4.3(3) and 7.4.7 to interpret Article 300(1) of the Kuwaiti Civil Law no. 67 of 1980 determining the factors to be taken into consideration by the court when assessing the amount of damages. Finally, it referred to Article 7.4.9(3) to confirm the rules contained in Articles 110 and 111 of the Kuwaiti Commercial Code no. 68, according to which the aggrieved party is entitled to additional damages if the non-payment caused it harm greater than would be covered by the normally applicable rate of interest.
Claimant contends that the issues of the entire dispute should be governed by Kuwaiti law, either as the law explicitly chosen by the Parties (Art. 38 of the Agreement, Art. 80 of the Main Contract) or, in the alternative, as the proper law of the contract in application of all the relevant criteria of Kuwaiti and other rules of conflict of laws.
Respondent submits that the Parties made a " negative choice ", i.e. each Party intended to avoid the other Party's (Kuwaiti or Italian) national law and the law of a third country was likewise excluded […]. Respondent concludes from this interpretation that the Parties have chosen, as the law applicable to the merits, that part of the Kuwaiti and Italian legislation which was common to them at the time the Agreement was entered into.
The Arbitral Tribunal holds that the Parties have neither explicitly nor tacitly agreed on the substantive law.
In the absence of any clear indication by the Parties as to the applicable law, the Arbitral Tribunal shall apply the law designated as the proper law by the rule of conflict which it deems appropriate (Art. 13 (3) of the ICC Rules).
When looking directly to the substantive law with the closest connection, the Kuwaiti law must again be the conclusion. With the exception of the nationality and the residence of Respondent (Italy) the Agreement and its performance do not have any link whatsoever with other countries than Kuwait where the entire Agreement was discussed, concluded and performed. The price had also been agreed and paid in Kuwaiti currency.
However, in accordance with a well-established practice in international commercial arbitration, the arbitrators shall take account also of the principles generally applicable in international commerce [...] This provision is particularly justified in view of the fact that the Parties refrained from choosing explicitly Kuwaiti law as the law on the merits [...]
The Arbitral Tribunal concludes that Kuwaiti law and, to the extent necessary, principles generally applicable in international commerce are applicable in the merits of the dispute.
The Tribunal holds that Respondent's allegations as in Claimant's gross mistakes are supported by the evidence:
a) A contractor's performance amounts in " gross mistake " if his conduct grossly violates a fundamental rule of the art or if he repeatedly or continuously fails in perform in a timely manner important parts of his obligations. The intent to harm the contractual party does not constitute a prerequisite of a culpa grave claim for contractual negligence. A party's conduct is grossly negligent if it shows an elementary failure of attention for the consequences of one's action and if it leads to a performance substantially different from what the other party reasonably expected (cf. Final Award in ICC case no. 6320 of 1992, ICCA Yearbook XX-1995, pp. 62ss, p. 87 ; Unidroit Principles, Article 7.1.6). " Gross mistake " under Kuwaiti law is not different from this generally accepted definition. If it were, Claimant would have submitted relevant authority in response in Respondent's allegations [...] Had a narrower definition of " gross mistake " been established under Kuwaiti law, the Tribunal would have had to follow " principles generally applicable in international commerce " (Interim Award I), i.e. the definition recorded hereinabove.
The Tribunal holds that a contractor's manpower disruption caused by a subcontractor's delay falls into the category of damages which may normally not be established, in a claim for damages, in an arithmetically satisfactory manner. Manpower disruption belongs in the category of damages not ascertainable by calculation, which must be determined by the Tribunal, taking into account the ordinary chain of events. This approach is in accordance with Art. 300 Sect. 1 of the Kuwaiti Civil Law no. 67 of 1980, which provides that compensation shall be " estimated " by the Court. It is also in accordance with generally accepted principles in international commerce (cf. e.g. Unidroit Principles of International Commercial Contracts, Rome 1994, Article 7.4.3 Subs. 3 : " Where the amount of damages cannot be established with a sufficient degree of certainty the assessment is at the discretion of the court. ").
Respondent claims interest on payments made in its Kuwaiti site, interest on its further claims and, originally, compensation for its rate of exchange losses […].
Claimant addressed the present issue only in its Post Hearing Brief [...] and only with respect to the restrictions applicable, under Kuwaiti law, on interest rates. It indicated that the interest rate may not exceed 7 % according in Art. 110 and 111 of the Kuwaiti Commercial Code (law no. 68/1980).
The Tribunal holds that Kuwaiti law restricts the rate of interest only with respect in contractual rates and in the interest rate applicable when the payment of money the amount of which is known to the debtor is delayed (cf. Art. 110 and 111 of the Kuwaiti Commercial Code no. 68), but not however in interest aimed at compensating the aggrieved party for the fact that the damages awarded shall only be paid some time after the damage occurred and that the creditor may have incurred financial charges in order in survive the period during which he was awaiting compensation of his damages [...]. Kuwaiti law provides that the compensation shall include " the damage suffered by the creditor [...] provided that this is a natural result of non-fulfillment of the obligation or delay thereof " (Art. 300 Sect. 2 of the Civil Law no. 67/1980). The Tribunal holds that the said financial charges may qualify according to the circumstances of the case, as a " natural result " of a debtor's delay in paying damages owed to his contractual partner. Particularly, if the basis of the debtor's liability is "grave mistake " [...] the normally applicable limits on interest rates are no longer applicable (Art. 300 Sect. 3 and Art. 304 Civil Law per analogiam).
This understanding of Kuwaiti law is in accordance with internationally accepted principles which otherwise would become applicable pursuant to the Tribunal's First Interim Award. Reference may again be made in the Unidroit Principles of 1994, which provide in Art. 7.4.9(3) that the aggrieved party is entitled to additional damages if the non payment caused it a greater harm than covered by the normally applicable interest rate.}}
Original in English (published in excerpt):
- ICC International Court of Arbitration Bulletin, Vol. 10, no. 2, Fall 1999, 34-39}}